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Tax Planning for Retirement

Tax Planning for Retirement

August 03, 2020

The old saying goes, we can be certain about two things in life: taxes and death. While most of us would like to ignore taxes altogether, they are inevitable. What many people don’t realize is that even though the paycheck stops in retirement, taxes come with a whole new set of rules and opportunities. Along with your investments and Social Security, taxes play an important role in retirement planning. Depending on your sources of income and where you live, there are ways to minimize what Uncle Sam takes from you in retirement.


Tax-Efficient Investments

During our working years, many of us have access to a 401(k) through our employer. While this investment option helps lower your tax liability in your working years, the rules change once you start taking money out of this account in retirement. To minimize your tax liability in retirement, an option might be looking at other retirement savings accounts such as a Roth IRA or a Roth 401(k). When you convert your 401(k) to these types of accounts, you will pay taxes now, but end up saving money in the long run.


Required Minimum Distributions

In 2020, the federal government changed the rules for when required minimum distributions must be taken. The change increased the age to take RMDs from 70 and a half to

  1. If you are 72 or older, you must withdraw a specified amount from eligible savings accounts each year. Although the emergency stimulus package known as the CARES Act suspended RMDs for the remainder of the year, they should still be part of your tax planning strategy. Be smart about your distribution schedule. Since RMDs are considered taxable income, it could be beneficial to work with a professional to discuss strategies that can lower your overall tax burden.


Social Security Benefits

Social Security is taxed based on your combined income. For couples filing married jointly with a combined income below $32,000, you won’t have to pay any taxes on your Social Security benefit. But as your income increases, you will begin to pay taxes on your Social Security benefit. Couples making up to $44,000 could see up to 50% of their benefits being taxed. Those above this threshold are subject to taxes on up to 85% of their benefits. It's important to have a Social Security strategy in place that maximizes your benefit and is tax efficient.


We understand the importance of incorporating tax strategies into your financial roadmap. We also know we can’t take a cookie-cutter approach. Each person’s situation is different, and a tax strategy needs to be customized to match your goals. Reach out to us to learn more about how we can put together a customized financial roadmap for you.


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** For a comprehensive review of your personal situation, always consult with a tax or legal

Advisor. Neither Cetera Investment Services, nor any of its representatives may give legal or tax advice.